Some hospital system executives have found that implementation of daily productivity tracking tools amounts to an average of between 10% and 18% in salary expense savings. A recent study by Sg2 has identified which top financial indicators can help you determine the strength of your facility.
Despite tighter credit standards and the current economy, there is a decreased interest in debt among credit-worthy borrowers. However, investment grade corporate credits like Cisco, GE, and Proctor & Gamble have taken advantage of an attractive U.S. Treasury curve, locking in capital when they think rates are attractive or may be heading higher.
All this talk of late about evidence-based medicine has triggered a déjà vu overload. Reading about it, hearing the pros and cons, is like dialing the way-back machine to 1993, when Unforgiven won an Oscar, Dallas won the Super Bowl, Michael Jackson was still just weird, and President Bill Clinton's sweeping healthcare reforms were getting barbequed in Congress. The details are different, of course, and many of the players have changed, but the central question is essentially the same: What is the government's role in the nation's healthcare system?
Nestled in the historic $787 billion stimulus package that President Barack Obama signed into law last week is $1.1 billion for evidence-based medicine research. It seems innocuous enough when compared with the massive $87 billion in supplemental money to shore up Medicaid, the $21 billion to assist the newly unemployed with their COBRA coverage, or the $19 billion for electronic health records incentives. The relatively small change for EBM, (or comparative effectiveness research, as it's being called in Washington) however, has more potential for the biggest impact on the $2 trillion-plus U.S. healthcare system than any other item in the stimulus bill. It will also prove to be the most controversial item. Evidence-based medicine will prompt the fiercest and most vitriolic debate on the role of government in medicine since the plug was pulled on the Clinton plan 16 years ago. In fact the debate has already started.
We've heard the arguments from both sides; it's a variation on the old managed care riff. Advocates of EBM see it as the savior for the healthcare system; use the best data to find the best medicine and eliminate needless, dubious, and expensive medical procedures. Peter Orzsag, the newly appointed director of the White House Office of Management and Budget and a leading advocate for EBM, says that the nation's healthcare is expensive and inefficient because it isn't measured.
"We have a set of financial incentives that encourage more care rather than better care," Orzsag told a Robert Wood Johnson forum last year. "In order to change that we need to do a lot more testing of specifically head-to-head comparisons of what works and what doesn't and we need to pay for what works and not so much for what doesn't."
Opponents see evidence-based medicine as a blueprint for "cookbook medicine," where the course of treatment is taken away from physicians and dictated by the government, with cost as much of a determinant as efficacy. "Evidence-based medicine is just another fancied-up name for managed care. It is essentially moving towards universal one-size-fits-all medicine," says Twila Brase, president of the Citizens' Council on Healthcare, a St. Paul, MN-based privacy advocacy group. "We see the proponents of rationing healthcare using science to rationalize rationing."
Don't be surprised to hear a growing chorus of Republicans—desperate for wedge issues to launch against Obama and the Democrats—pick up on that theme. Talk radio leviathan Rush Limbaugh, inarguably the loudest voice in the GOP right now, has already weighed in, saying Obama's stimulus bill is the first step in the march toward socialized medicine. Limbaugh, of course, was a huge opponent of the Clinton health plan back in 1993, which apparently was also the first step in the march toward socialized medicine.
Former Republican Lt. Gov. of New York Betsy McCaughey, now a fellow at the conservative Hudson Institute, in a Feb. 9 column for Bloomberg, warned of a "new bureaucracy, the National Coordinator of Health Information Technology (that) will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and ‘guide' your doctor's decisions." McCaughey was also a leading critic of Clinton's health plan.
With all these Clinton-era retreads popping up with the same arguments they had 16 years ago, we shouldn't be surprised if Harry & Louise stage a comeback too.
Interestingly enough, the health insurance industry—the fine folks who funded Harry & Louise and other ads designed to scare Middle America away from the Clinton plan—is now firmly in the EBM camp. "At a time when access to quality, affordable healthcare is a serious concern for many Americans, it is critical that our country make investments to create a sustainable healthcare system," says Karen Ignagni, president and CEO of America's Health Insurance Plans. "We must also ensure that patients and doctors have the information they need to evaluate the safety, effectiveness, and value of healthcare." Ignagni did not elaborate on the exact role that health insurance companies would play in determining appropriate—and cost-effective—care.
AARP CEO Bill Novelli, another EBM fan, told the association's 40 million members to be wary of the alarmist rhetoric. "They're at it again. Opponents of health reform are now using scare tactics in a misguided attempt to stop progress in its tracks, blocking attempts to fix the broken healthcare system that is hurting American families and our economy."
Novelli says the static is coming from "opponents—like some drug companies and medical device makers—that don't want this research. They fear it will cut the profits they make on ineffective drugs and equipment."
These are just the opening salvos!
Here's how I see things playing out at a date in the not-too-distant future. The largest, wealthiest, best-organized, most influential industries and public interest groups, and the Obama administration are forming ranks to fight it out over a program that could fundamentally reshape healthcare, and redefine the government's role in determining how care is delivered.
Potentially, trillions of dollars are at stake. In Congress, this fight will almost assuredly break upon already entrenched partisan lines. Everything else does. The rancorous debate will come in the middle of the worst recession since the Great Depression, with millions of Americans out of work, or gravely anxious about their prospects, angry, politically aware, and in no mood for partisan grandstanding.
To borrow another term from the early 1990s, attributed to the late but not lamented Saddam Hussein, this will be the mother of all battles.
John Commins is the human resources and community and rural hospitals editor with HealthLeaders Media. He can be reached at jcommins@healthleadersmedia.com.
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After CMS announced the Recovery Audit Contractor expansion in September 2008, most healthcare financial seminars have had sessions on the RAC program. Using data from the RAC demonstration project, the focus was generally on the RAC appeals—but interestingly, appeals of overpayment denials were so rare in the demonstration project that $992 million was recovered from hospitals in California, Florida, and New York.
In RAC Expansion, however, PPS hospitals' first focus should be on preparation, not appeals. A vigorous appeals response is essential, but it is the last step. Appeals can be compared to a football team's offense (the RAC) having a first-and-goal game situation. Preparation is the defense by PPS hospitals before the game situation gets to first and goal.
From the demonstration project, PPS hospitals should now recognize that effective preparation can reduce the number of appeals and minimize recoupment. These 10 actions could do just that.
The RAC is not an FI: All PPS hospitals are familiar with their FI. The FI is paid on a fixed fee basis, with incentives for meeting or exceeding certain performance standards. Communication is usually friendly and informative. When a claim is denied, the appeal is a friendly, non-onerous process. By contrast, the RAC is a new and very different kid on the block. The RAC is paid on a "contingency basis," that is, the more recoupment by the RAC, the greater its fee. By 2010, all PPS hospitals will be subject to RAC reviews. RAC will start with automatic and proceed to complex reviews, with a letter to PPS hospitals requesting specific medical records within 45 days. As the RAC may request records as far back as Oct. 1, 2007, some records may be stored off-site. If not available electronically, it may be difficult to provide in the time specified. An appeal for more time should be filed with the RAC immediately.
Appoint a CRO: All RAC requests should go to one individual, a Chief RAC Officer with authority and responsibility to direct specific actions across the organization. It should be clearly understood that a CRO request has priority over any operational issues and a timely response is not only essential, but required. Only the CEO can intervene. Finally, if anyone else in the organization receives an RAC request, it should be immediately forwarded to the CRO.
Prepare, prepare, prepare: The RAC may review records as far back as October 2007. To prepare. PPS hospitals should take the following steps:
(1) Identify all cases at risk; (2) Prioritize by recoupment impact; (3) Perform coding and medical necessity reviews; (4) Establish a RAC repository; (5) Test RAC work flow; (6) Prepare periodic status reports; (7) Get RAC updates (e.g. new targets, new issues)
As steps 4 and 5 are perhaps the most critical, they deserve further comment.
Step 4—Establish RAC Repository: This repository will consist of all claims that may be requested and subject to possible recoupment. The repository will identify the claim, potential issue, corrective action taken (if any), and medical record location. If possible, these records should be available electronically to facilitate timely medical record response.
Step 5—Test RAC Work Flow: RAC requests for medical records will cover from October 2007 to the current date. As the time period could be 1½ to 2 years, the volume may be large—possibly 500 records. To ensure a complete and timely response, RAC workflow should be thoroughly tested, well before RAC requests begin.
Together, steps 4 and 5 should facilitate a complete response to RAC requests and eliminate overpayment denials for lack of timely response—frequently the case in RAC Demonstration. These seven tasks will allow PPS hospitals to identify and correct possible exposure to RAC audit targets, reduce overpayment denials, and minimize recoupment. If sufficient personnel and system resources are available, preparation may be done by internal staff. If sufficient personnel and system resources are not available, it should be done by external staff, with prior RAC experience and RAC systems capability.
Conduct pre-RAC audits of targeted claims: A retrospective audit of all RAC targets should be conducted by independent internal or external staff using data-mining techniques identified in step 4 above. This should not be a sample record audit, but a thorough audit to ensure that all reviewable claims are accurately coded and appropriately documented. Steps 4 and 5 may require more resources than are available. When this is the case, qualified outside resources should be utilized.
Implement RAC record request and appeal tracking systems: PPS hospitals should develop (or acquire) an effective RAC tracking system to quickly identify and trend areas of exposure and multi-level appeals. Without such a system, RAC overpayment denials will multiply, making it impossible to efficiently track RAC denials. As the managed care appeal system is based on payer contract language and state regulations, a separate and new appeal system may be required (see No. 8 below). RAC appeal systems are available from consultants and vendors.
Establish clinical and coding feedback: PPS hospitals should develop (or acquire) a feedback system that quickly identifies new coding and documentation issues from your RAC. Armed with this new data, your hospital can immediately take corrective action on new issues.
7. Calculate the impact of overpayment denials: During the RAC Demonstration, many hospitals did not have a system to quickly quantify the financial impact of overpayment denials. For those that did, the volume of denials often overwhelmed the hospital. Further, the absence of specific allowance codes made it difficult—or impossible—to quantify the impact of RAC recoupment, and frequently the magnitude of RAC recoupment was not known until the RAC appeal deadline had passed. In preparing for the Expansion RAC, PPS hospitals should have allowance codes to enable quick computation of revenue impact. This will enable hospitals to prioritize appeals by revenue impact, most helpful when resources are limited.
8. Start yesterday: In spite of RAC delays (contractor appeals), the time period for RAC Expansion review remains from Oct 1, 2007 to the current date. Thus, a delay adds several months to the review period, increases the number of claims subject to review in RAC Expansion, and makes the RAC requests more difficult to handle in a timely manner. Instead of taking a deep breath and deferring the start of RAC preparation, PPS hospitals should prepare immediately for RAC Expansion. Delaying this decision for any reason only exacerbates the problem. PPS hospitals that have not started to prepare will be disadvantaged. This may mirror the situation faced by hospitals in California, Florida, and New York during the RAC Demonstration, where they were overwhelmed by the number of claims requested. As they could not respond in a timely manner, the overpayment denial was automatically affirmed. General George Patton defined an "unforgiving minute" as the instant a decision is made that cannot be easily reversed. Similarly, a decision to delay RAC preparation might prove to be a costly error in judgment.
9. Appeal, appeal, appeal: As CMS proudly reported, PPS hospital appeals were low during RAC Demonstration. Further, appeals decided in favor of providers were paltry. Given the lack of preparation and an effective appeals system, this should not be a surprise. As in the RAC Demonstration, RAC Expansion will do two types of overpayment review: Automated and complex.
Automated—Does not require any medical records. An overpayment is determined based on data review. RAC Expansion will probably start here.
Complex—Medical records required. High probability that service was not medically necessary or in corrects setting (1/3).
Automated reviews identify clear overpayments. For example, duplicate claims for the same beneficiary for the same surgical procedure in the same hospital is clearly (1) not medically necessary, (2) should not have been billed twice by the hospital, and (3) should not have been paid twice by the FI. The automated review applies when the improper payment is obvious.
Complex review is when the RAC believes that the claim was likely an error. Here, medical records are requested. Following medical record review, the RAC determines whether the claim was medically necessary or in the correct setting and whether the payment was correct, overpaid, or underpaid. In the RAC Demonstration, one of three requests resulted in an overpayment denial. PPS hospitals should appreciate not only the timing of these reviews, but the substantial preparation required to minimize recoupment for each.
Although the appeal is the last line of defense, it should be pursued vigorously. The RAC appeal process is arduous and long, and a thorough and timely response is essential to minimize recoupment. As the RAC Expansion will likely identify new overpayments for denial and recoupment, a strong and vigilant appeals process is both critical and necessary. When PPS hospitals missed an appeal deadline, the appeal was automatically affirmed in favor of RAC. When an appeal was made, only 27% of overpayment denials were decided in the Provider's favor. Regrettably, in the RAC Demonstration, a vigorous appeals process for Part A claims was too often lacking or absent.
10. Re-bill all IP denials as OP: One of the major overpayment denials was for inpatient setting. Still, some PPS hospitals did not promptly re-bill inpatient denials as outpatient claims, further adding to their loss. In addition, most FIs have already added RAC Demonstration overpayment targets for review. Consequently, PPS hospitals should appeal most—if not all—FI denials. This will ensure that the hospital is carefully watching these target claims for the RAC Expansion.
In RAC Demonstration, unprepared PPS hospitals paid $992 million in recoupment. As RAC Expansion, recoupment could easily double or triple. Thus, strong offense (preparation) and vigilant defense (appeals) are essential to minimize recoupment. When not prepared, the margin of PPS hospitals could be reduced or possibly erased.
As Louis Pasteur said, "chance favors the prepared mind." Minimizing RAC recoupment is first about preparation and second about appeals. Effectively applied, these 10 actions can minimize the chance of margin erasure from RAC recoupment.
Buddy Elmore is executive vice president and chief financial officer of Sacred Heart Health System in Pensacola, FL. Stephen Forney is vice president of margin development at Ardent Health Services in Nashville, TN. Bill Phillips is associate professor of healthcare finance at The George Washington University and Vice President & Chief Revenue Officer, Revenue Strategies. He may be reached at billinfll@juno.com.
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Pamela S. Tvarkunas has been promoted to CEO of Riley Hospital, a Health Management Associates hospital. A Meridian native, Tvarkunas has been affiliated with Riley Hospital for more than 37 years, where she began her career as a student nurse. Most recently Tvarkunas served as the hospital's COO.
John White has been named CEO of North Hawaii Community Hospital, Kamuela, a 40-bed acute-care hospital, effective April 15. He replaces Ron Virgus, who has served as interim CEO since last July, and who will continue in that capacity until White takes over in April. White is currently president and CEO of Samaritan Healthcare in Moses Lake, WA.
John F. Collins has been named president and CEO of Winthrop-University Hospital. Collins has been a member of the Winthrop leadership team for more than a decade, most recently in the role of executive vice president and COO. Collins' appointment will become effective March 1. He replaces Daniel P. Walsh, who announced his retirement last fall, will serve as a consultant and advisor to Collins, through June 30, his official retirement date.
David W. Benfer has announced his retirement as president and CEO of the Saint Raphael Healthcare System after 10 years at the nonprofit hospital and its affiliates. Benfer, 62, is expected to stay on for up to a year in his current post as a nationwide search is conducted for his replacement. When a new CEO is named, Benfer will transition to a role as vice chairperson of the Saint Raphael Healthcare System Board of Trustees. His role will include efforts to pursue Saint Raphael’s affiliation with a national health system—one of the Board’s long-term strategies to secure Saint Raphael's future and ensure the continued presence of Catholic healthcare in the region.
Debt is a proverbial four-letter word these days, and not just because it actually has four letters.
After years of easy money and low interest rates, the worm has turned—and quickly. Where once hospitals of all stripes had an easy time offering debt through the municipal markets, now only the highest-rated hospitals—that is, those that make a margin—can effectively sell a debt offering. Those on the lower end of the totem pole are largely out of luck. And forget about bank loans. It only seems like those guys aren't lending to anyone these days. Debt is available but only at extremely high interest rates, by recent historical standards.
I'm not sure who coined this term, but many have called the recent credit crisis the Great Deleveraging. I like the term because it effectively describes the aftermath of what ails the economy—a debt binge across all economic sectors the likes of which we have never seen. The recent rash of job cuts and skyrocketing interest rates on debt reinforce the truth that deleveraging can be extremely painful, especially for an economy that depends on debt as much as ours does, or did. Where once lenders didn't meet anyone to whom they wouldn't loan money, now they're only offering loans to those who can pay it back. That might sound like a good thing, but the pendulum has swung so far back to safety compared to the recklessness of recent years that, as one wag put it to me in a recent conversation, you can only borrow money if you don't need it.
What a paradox.
So what does the Great Deleveraging mean for you? It depends on a lot of variables. Some hospitals and health systems dug a pretty deep a hole for themselves with too-good-to-be-true derivative or swap transactions where they were fixing rates synthetically.
Meanwhile, hospitals that didn't try the swap magic are still often going wanting if they need new debt, but at least they aren't being forced to put up significant collateral to keep their debt covenants intact. For those that are having to put up additional capital to make up for the swap losses, in addition to everything else, they have to wonder whether they are going to get caught up in defaults that they thought they would never have approached.
So that's the bad news.
The good news may be this: You're going to be judged going forward on how well you do the blocking and tackling with operations. If you're offering poor patient care and bad customer service, for example, it's not as easy to cover that up with cheap debt, new glittering patient towers and technology purchases funded on the same, and promises that bad financial and operating performance will be fixed with the new toys. According to the finance section of our HealthLeaders Media Industry Survey, about 60% of hospital leaders expect their capital investment expenditures to decrease or remain flat in 2009. Many hospital CFOs and COOs I talk to now are focusing more effort than ever in collecting what they're owed, improving processes, bettering patient care, and other basics that should have been at the forefront of their intellectual capital demands all along—and they're only talking about expansion or acquisitions that can be accomplished organically. Much of this transformation has been forced upon us, it's true. But as the old saying goes, better late than never.
Our parents and grandparents always cautioned us about buying on credit, knowing as they did that it fostered carelessness and a tendency to focus on instant gratification rather than saving for and investing in the future. Collectively, we forgot that lesson for a while, but such wisdom has never seemed more prescient.
Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
The federal stimulus package is expected to lead to termination of a state plan to tax hospital revenues. The addition of $1.73 billion in stimulus aid for the state Medicaid program has almost certainly killed the proposed levy on hospital revenues, according to legislative leaders and healthcare industry officials. A similar tax on health insurer revenues appears to have died as well, amid the strong anti-tax sentiment among state legislators.
